Why Not Use Your Tax Refund to Make More Money?

Have you filed your taxes yet? Do you know if you’re getting a refund? Have you thought of what you might do with the money?

The average tax refund in 2011 was nearly $3,000. Considering the median income in the United States is around $60,000, the tax refund may represent nearly a month’s income to many families. This is not an insubstantial amount, and careful consideration is needed to decide how to use the refund.

Sure, you could buy some “stuff”, but don’t you have enough stuff? Instead, why not use the money in a way that gives you more money? That’s right, instead of blowing the money on stuff you won’t even remember a year from now, consider investing it so that the tax refund makes more money for you over the years. Here are some investments to consider:

1. Invest in your retirement. Do you have a Roth IRA set up? If you qualify for one, depositing your tax refund in a Roth IRA is a good idea.

Consider this. If you’re 30, and every year you get a $2,000 refund which you invest in your Roth IRA and you don’t invest anything else in your Roth IRA, at age 65, you will have contributed $70,000. However, at a 7% rate of return, that account will now have $295,827!

2. Invest in foreign currency. If you’re looking for a more thrilling investment, consider trying to trade forex. If you’re successful, you could get a good return on your money in a short period of time, giving you even more money to invest. However, don’t make this investment lightly; make sure you take the time to research investing in foreign currency so you are aware of the benefits as well as the risks.

3. Invest in yourself. Some employers offer a higher wage if you take classes or pursue another degree. If you have some extra money from your tax return, why not use that money to invest in yourself, especially if your employer will reward you with more money?

If you are expecting a tax refund, don’t be so quick to decide the many ways you can spend it. Sure, using the money to take a vacation is nice, but if you instead invest, you may eventually have enough money to take many nice vacations. Resist the urge to spend now, and reap the rewards later.